Last year was the first since the financial crisis of 2007 in which the number of managers active in the European leveraged loan market expanded. The count of manager groups rose to 95 in 2013, up from 86 the previous year.

The record, set in 2007, was 116 manager groups. Since then, the number of managers fell year on year to the low in 2012, as the institutional landscape saw consolidation between managers, and some players exited the European loan market.

Now the tide has turned again, as new entrants join the fray.

In addition to the increase in the number of managers, a CLO resurgence helped to drive the total count of institutional investment vehicles active in Europe to a record high of 371, up from 352 in 2012. By comparison there were 343 active in 2007.

CLO share shrinks

Out of all the senior debt allocated in primary to institutional investors last year, CLOs took a 49% share, down from 59% in 2012.

Although 20 new CLOs came on line in 2013 via 15 managers, a greater number of vehicles exited their reinvestment periods and were therefore unable to book new deals, except via mechanisms such as cashless rolls, as seen on the deals for OGF, BSN Medical, and Springer.

The net capacity of the CLO world therefore shrank, while non-CLO investment activity grew, leaving CLOs with the smallest share of the institutional debt pie in LCD’s records.

Looking at the overall senior debt market (as opposed to institutional debt only) CLOs absorbed only 21% of new issuance, in a weakening of their firepower compared with 2006-2007, when they took a 35%-plus share.

The year ahead could bring as many as 40 vehicles, according to analysts’ predictions, which might increase CLOs' share of the primary market. Managers lining up warehouses include several who have yet to print a 2.0 deal, and at least one that has never issued a European CLO.

Non-CLOs grow

Taking its largest-ever share of fund allocations last year, according to LCD data, was the broad category classed as credit funds and separately managed accounts. These vehicles took 38% of institutional paper placed in 2013, up from 25% the year before.

Although there are new managers appearing in the European market, arrangers report the bulk of European paper is still being placed with a small core group (roughly 20-30 firms) of fund managers. These are familiar, well-established managers who were typically big players in the 1.0 CLO market, but now they split their allocations between a growing range of vehicles including CLOs, pooled funds, and managed accounts.

In addition, a small share of paper was absorbed by prime rate and high-yield retail funds. These kept pace with the growth in institutional issuance to maintain a 9% share from 2012 to 2013. Prime rate funds – which saw huge inflows in the U.S. last year – tend to be particularly active in cross-border transactions.

Non-CLO loan investment vehicles operating in the market last year included a small but growing number of combined loan/bond funds. Most of these are managed by firms that are already active in both fields, but that want to offer a joint fund to cherry-pick between the two asset classes.